Long

SPX May Rally to Backtest H&S Neckline or Fill Gaps

Updated

Primary Chart

SPX may rally this week to backtest the H&S neckline (now resistance) where SPX price experienced a downward breakout in late August 2022. So far, price action has come off the lows last week with some force and velocity.
Short-term price targets are 4106 first, and if that level holds, then 4137 and 4187. Much depends on the CPI print on Tuesday.

Bollinger Bands on the 2-hour chart show increasing directional volatility with an upward bias into this week.
Bollinger Bands on the daily chart have begun to narrow, showing that the trending downward move is temporarily paused while price chops within the recent range. Chop includes the current rally to retrace a substantial portion of the recent downtrending move since August highs.
Further technical evidence supporting ongoing choppy price action arises from the SPX triangle pattern discussed last week, where SPX bounced right off the lower trendline of the triangle—which is an upward trendline from June 2022 lows.
The H&S neckline where a backtest may occur is shown on the Primary Chart above. This area is around 4130-4150 SPX.
Two gap fill areas lie above the H&S breakout area around 4219 and 4279. If CPI on Tuesday comes in better than expected, these gap-fill areas could be filled before the downtrend resumes.
Fibonacci levels of resistance and support include a cluster of support from 4054-4072, 4106 (coinciding with the H&S neckline that may be backtested soon), 4137, 4187, and 4231. See Supplementary Chart A with Fibonacci Levels chart below.
A supply / resistance zone is near 4200-4220, coinciding with the lower gap-fill area.

Supplementary Chart A: Fibonacci Levels to Watch over The Next Week

Please note that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation, and countertrend trading, e.g., trading a rally in a bear market, is tricky and challenging even for the most experienced traders. Countertrend trades are lower probability trades as well.

Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.

DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.

Trade closed manually

Price came within a few points of the target for the choppy bounce. SPX reached 4119 yesterday. This post was published when SPX's last close was 4069, and it suggested SPX could bounce to backtest 4137-4149. It came very close at 4119.28 on Sept. 12.

This post never argued that the trend had reversed. This post argued only for a bounce within the context of an ongoing downtrend / bear market.
After the gap down today, the short-term bounce is complete and the short-term bias upward is no longer applicable.

Note

After today's major decline, I also want to comment on other aspects of this post's analysis.

1. This post noted that "Bollinger Bands on the 2-hour chart show increasing directional volatility. And the Bollinger Bands correctly predicted increasing directional volatility. Partial success here.

2. The forecast of a continued bear rally / chop with an upward bias into this week was proven incorrect though it was partially correct—on Monday, SPX continued the upward move by about 1.06%. But Tuesday was a massive down move though. Continuation to the downside remains the path of least resistance.

3. One of the more conservative targets were reached: 4106. The next target of 4130, 4137 and 4149 and 4187 and the gap fill areas at 4219 and 4279 were not reached, and are likely invalid targets in the short-term. It's not prudent to bet against this strong downward move (for now) for anything other than an intraday bounce.

4. The post noted Bollinger Bands on the daily chart have begun to narrow, showing that the trending downward move is temporarily paused while price chops within the recent range. This appears less likely after today's impulsive downward move—if price reverses tomorrow for some reason, then maybe (small chance) the chop continues. But with a -4.3% drop in SPX and over -5% in NDX, price is likely signaling a near-term trend move down.

SquishTrade

Also on:

Related publications

Disclaimer

The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.